Business owners have been selling their firms – but total sales figures are down significantly compared to previous years.
UK entrepreneurs have made £11.8bn selling their firms in the past year, according to research by Bowmore Asset Management.
That was 59 per cent lower than the £29.1bn that businesses made in 2019/20. This was partly because of the early stages of the Covid-19 pandemic causing a slump in merger and acquisitions activity. The economic slowdown during the pandemic also meant that entrepreneurs were more reluctant to sell at reduced valuations. Prospective buyers were deterred from buying UK businesses in the first six months of the pandemic because of the uncertainty around its economic effects. Social distancing rules also made it more difficult to carry out due diligence checks, which are essential to the mergers and acquisitions process.
Mark Incledon, chief executive officer of Bowmore Asset Management, said: “British entrepreneurs have had another good year for selling businesses, with billions of pounds more brought in.”
“Even during the extremely challenging economic conditions of the pandemic, UK entrepreneurs were able to generate significant amounts of money by exiting their businesses.”
Incledon advises entrepreneurs who have sold their businesses recently that they should be looking to invest these profits and maximise future returns.
He added: “The first order of business for entrepreneurs who have sold their companies should be reinvesting that money sensibly. Yields are now more generous, but inflation is eating away the value of savings at a far faster rate than normal.
“However, valuations are depressed across a wide range of asset classes and those who invest wisely today stand a good chance of benefitting in the long term.”
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What is Business Asset Disposal Relief?
Bowmore Asset Management’s research is based on HMRC’s Business Asset Disposal Relief figures. It was known as Entrepreneurs’ Relief before April 6, 2020. It means that you may be able to pay less Capital Gains Tax when you sell all or part of your business – 10 per cent rather than 20 per cent. It covers the sale of a business or qualifying shares for up to a lifetime value of £1m (it was £10m under Entrepreneurs’ Relief).
To be eligible, you must be able to satisfy the following two criteria for at least two years up to the date of selling your business:
- You’re a sole trader or business partner
- You’ve owned the business for at least two years
By Anna Jordan
Source: Small Business